Deciphering the Fall and Rise in the Net Capital Share: Accumulation or Scarcity?

“To a large extent, this is because gross shares are easier to measure and interpret: as economists since Michal Kalecki (1938) have observed, net income inherently involves a somewhat arbitrary computation of depreciation.”

“…to which the fall in the labor share of GDP is due to measurement issues such as the treatment of capital depreciation (Bridgman 2014), housing (Rognlie 2015), self-employment (Gollin 2002; Elsby, Hobijn, and Sahin 2013), intangible capital (Koh, Santaeulalia-Lopis, and Zheng 2018), and…”

“Our results generalize the results of Solow (1957) and Hulten (1978) to economies with distortions.”

“Rognlie (2016) and Caballero, Farhi, and Gourinchas (2017) discuss interpretations.”

“Some analysts suspect that a substantial part of the increase in capital’s share is either mismeasurement or is due to housing, so the estimates here are probably an upper bound on the share change (Elsby, Hobijn, and Şahin 2013 and Rognlie 2015).”

“See Rognlie (2016) and Gutierrez (2017).”

“…Piketty’s (2014) Capital, mostly disregards the role of housing as a driver of wealth inequality (see also Bonnet et al. 2014; Fuller et al. 2020; Rognlie 2015), and the proposed “rule” of growing wealth inequality (r > g) at best discounts the importance of a careful analysis of the…”

“However, some documents claim that the fall in the labour share of GDP is due to measurement issues (Elsby et al., 2013; Bridgman, 2018; Rognlie, 2016; Koh et al., 2020; Smith et al., 2019).”

“Even in the face of growing attention to rising economic inequalities (see Piketty 2014; Saez and Zucman 2014; Stiglitz 2012), recent interpretations of the role of housing have frequently perpetuated the view of a ‘broad ownership’ of housing (Rognlie 2015) with claims that house value dynamics have effects which may…”

“Rognlie (2015) discusses it in detail.”

“See Rognlie (2015) for a related discussion of models capable of explaining the recent rise in the net capital share.”

“The same is not true, he claims, for the share in gross income, which is at an all time low.3 Rognlie (2015) focuses more narrowly on the corporate, non- nancial sector (for reasons to be explained below) and nds similarly that the current share of wages in net income falls within the historical…”

“…concentration: the role of housing In the discussion of average wealth, we identified the role of housing wealth, and this has been the concern of a number of commentators on the rise of capital described by Piketty (2014) – see, for example, Bonnet et al (2014), Turner (2014) and Rognlie (2015).”

“…US is the outlier, with only a 1% housing share.9 The inclusion of housing biases the corporate labor share downward, for the reasons emphasized by Rognlie (2015): housing has a low labor share relative to the rest of the corporate sector ( 6% vs. 66%, respectively), so an increase in the housing…”

“Recent interpretations of the role of housing in inequality perpetuate the view of a “broad ownership” of housing (Rognlie 2015) and motivate claims that house value dynamics have inequality effects which are of a second order or even “redistributive” in nature (Bonnet et al.”

“Rognlie (2015) finds that more expensive residential investment and increased land scarcity have led to higher (housing) capital shares at the expense of labor income.”

“In addition, our results are unlikely to be biased by the evolution of housing prices that impact the measurement of real estate income: Rognlie (2015) documents that income from housing alone was responsible for the labor share dynamics computed from household-side surveys, and Eden and Gaggl…”

“Per the decomposition by Matthew Ronglie and others, most capital is held by such concerns (Ronglie 2015).”

“The latter value is aggressive, because the recharacterized-wage share of pass-through income is likely below the human-capital share of 75% estimated in Smith et al. (2019). Thus, the implied estimate can be interpreted as (14)An alternative approach would impute wages to partners using observationally similar worker…”

“Further, some approaches include or exclude public employees, others import and production taxes, or depreciation, or certain activities (i.e., real estate: see Rognlie, 2015).”

“Karabarbounis and Neiman (2013), Oberfield and Raval (2014), Rognlie (2016) and Acemoglu and Restrepo (2018) use more complex production structures to draw out the implications of capital-augmenting shocks on labor’s share of income.”

“14A capital-labor split of 30-70 is a standard conjecture in the macro literature (Rognlie 2015), but at the firm-level this share may vary considerably.”

“Owner occupied housing is a large component of household wealth and its market value rises and falls with changes in house prices (Rognlie, 2015).”

“There are also several studies suggesting that the decline in the labor’s share is not significant once some factors, such as the housing sector (Rognlie (2015)), capitalization of intellectual property products (Koh et al. (2015)), and depreciation and taxes (Bridgman (2014)), are netted out.2…”

“From a critical standpoint, the analysis of the social consequences of these processes for vulnerable groups might contribute to the debate on the role of certain types of space in promoting social inequality (Rognlie, 2015).”

“Moreover, rising concentration at the national level appears to be accompanied by increased competition at the local level (Rinz 2018; Rossi-Hansberg, Sarte, and Trachter 2018).”

“From an income distribution perspective, it may be desirable to base labour productivity on net rather than gross value added, since only value added net of capital depreciation is available for compensation of workers (Bridgman, 2014; Rognlie, 2015; Cho et al., 2017).”

“Spatial segregation of households along different income groups influences the wealth distribution and contributes to income inequality (Reardon and Bischoff, 2011; Rognlie, 2016).”

“These results are consistent with those of Rognlie (2015) for G7 economies and with OECD (2018) when we consider the same set of countries.”

“…decline and how it is affected by different measurement issues such as the treatment of self-employment (Elsby, Hobijn and Şahin, 2013), housing (Rognlie, 2015), depreciation (Bridgman, 2018), income shifting by business owners (Smith et al., 2019), and intangible capital (Koh,…”

“regarding measurement of market power and aggregation (as discussed in Syverson (2019)) that are most prevalent at the aggregate level.”

“This paper uses industry accounts and imputes labour compensation of the self-employed at the industry level rather than using the non-financial corporations’ institutional account without correction for the selfemployed as Rognlie (2015) and Karabarbounis-Neiman (2014). Pionnier and Guidetti (2015) show that in the n…”

“Most previous research focuses on the United States and other developed economies, e.g., Blanchard (1997), Elsby, Hobijn, and Şahin (2013), Rognlie (2016).12 Different forces play a role in these papers, while globalization is not studied in depth.”

“(2017), our paper relates to a growing literature on the evolution of factor income shares and their determinants (see, e.g., Elsby et al., 2013; Bridgman, 2018; Rognlie, 2015; Lawrence, 2015; Barkai, forthcoming; Kehrig and Vincent, 2017; Koh et al., 2018).”

“…Zeira (1998), Acemoglu and Restrepo (2018), Martinez (2018)), globalization (Elsby, Hobijn, and Şahin (2013)), the decline in the relative price of capital (Karabarbounis and Neiman (2013)), increased cost of housing (Rognlie (2015)) or a rise in productivity dispersion (Gouin-Bonenfant (2018)).”

“The study of income inequality is a central issue in economic research and politics, as it is considered to be one of the biggest social, economic and political challenges of our time (The Economist, 2012). Although it is widely recognized that some degree of inequality in the distribution of income is necessary in or…”

“Including the income attributed to the owner occupied housing in the value added (or not) (Rognlie, 2015).”

“House price and mortgage rate dynamics therefore trigger large shifts in that part of the wealth distribution (Rognlie 2016; Knoll, Schularick, and Steger 2017; Bach, Calvet, and Sodini 2020; Fagereng et al. 2020; Kuhn, Schularick, and Steins 2020).”

“, 2014), whereas the housing sector has received much less attention in studies on the functional distribution of income (Rognlie, 2015; Torrini, 2005a, 2005b, 2010), although as is shown below this accounts for a material part of the observed movements in factor shares.”

“Thus, different factors would account for this decline: the treatment of capital depreciation, indirect taxes and housing (Bridgman, 2017; Rognlie, 2015; Cette et al., 2020), selfemployment (Elsby et al., 2013; Gollin, 2002; Cette et al., 2020), intangible capital (Koh et al., 2020), business…”

“3Other prominent explanations include Elsby et al. (2013), Rognlie (2016), Koh et al. (2016), Autor et al. (2017), Grossman et al. (2017) and Barkai (2017).”

“…were entirely consistent with the conspicuous increase in the output elasticity of capital and the complementary reduction of the output elasticity of labor that paralleled and augmented the sharp increase of the capital intensity of production activities (Elsby et al., 2013; Rognlie, 2016).”